Howard v. Gleason Corp.

• Decision Date: 13 April 1990
• Docket Number: D,No. 783,783
• Citation: 901 F.2d 1154
• Parties: , 12 Employee Benefits Ca 1297 Deborah C. HOWARD, Plaintiff-Appellant, v. GLEASON CORPORATION and Alliance Tool Corporation, Defendants-Appellees. ocket 89-7842. Second Circuit
• Court: U.S. Court of Appeals — Second Circuit

Page 1154

901 F.2d 1154

58 USLW 2629, 12 Employee Benefits Ca 1297

Deborah C. HOWARD, Plaintiff-Appellant, v. GLEASON CORPORATION and Alliance Tool Corporation,

Defendants-Appellees.

No. 783, Docket 89-7842.

United States Court of Appeals,Second Circuit.

Argued Jan. 22, 1990.

Decided April 13, 1990.

Donald W. O'Brien, Jr., Woods, Oviatt, Gilman, Sturman & Clarke, Rochester, N.Y., for plaintiff-appellant.

Eugene D. Ulterino, Nixon, Hargrave, Devans & Doyle, Rochester, N.Y., for defendants-appellees.

Before KEARSE, MINER and WALKER, Circuit Judges.

WALKER, Circuit Judge:

Plaintiff Deborah C. Howard appeals from a judgment entered in the United States District Court for the Western District of New York (Telesca, J.) denying her motion to remand the action to state court and granting summary judgment in favor of the defendants, Gleason Corporation and Alliance Tool Corporation. 716 F.Supp. 740. The district court concluded that New York Insurance Law Sec. 4216(d) is preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. Secs. 1001-1461 (1982 & Supp.V 1987) ("ERISA"), and that the defendants had complied with their obligations under the relevant ERISA provisions. Because we agree with the district court in both respects, we affirm.

BACKGROUND

Daniel Howard was employed by the tool division of Alliance Tool Corporation ("Alliance"), a wholly owned subsidiary of Gleason Corporation ("Gleason"). Gleason provided group life insurance benefits to both its employees and the employees of its subsidiaries pursuant to an agreement with the Prudential Insurance Company of America. Under the contract with Prudential, Alliance maintained a Group Life and Long Term Disability Insurance Plan (the "Plan"). In November, 1984, Alliance distributed a summary of the Plan to all its employees describing the various life insurance options that would become available in January, 1985. Daniel Howard enrolled in the Plan and obtained two life insurance policies with plaintiff Deborah Howard, his wife, the named beneficiary.

Under the Plan, employees whose employment with Alliance terminated had the option of converting their group life insurance policies to individual policies within thirty-one days after termination. This conversion option was described in the November, 1984 initial summary plan description, in a further summary plan description distributed to all employees in September, 1985 and in a booklet describing employment benefits distributed to all employees of Alliance in March, 1986.

On December 16, 1986, Alliance sold its tool division to J.S. Tool and Die Co. As a result of the sale, Mr. Howard's employment with Alliance terminated, although he continued to work in the same capacity at the same location, at first for a temporary agency and later as an employee of J.S. Tool and Die Co. Mr. Howard took no steps to exercise his insurance conversion option.

Upon Mr. Howard's death on July 11, 1987, Deborah Howard submitted claims under both of her husband's policies. Prudential denied both claims on the ground that Mr. Howard's life insurance coverage under the Alliance Plan had lapsed when the tool division was sold and he failed to continue coverage by converting the group policies to individual policies. Mrs. Howard then sued in state court alleging that Gleason and Alliance had failed to comply with New York Insurance Law Sec. 4216(d) which required them to inform her husband of his conversion privilege within fifteen days of the termination of his employment with Alliance, the event which triggered his right to convert. ¹ The defendants, arguing that ERISA preempted section 4216(d) and that accordingly a federal question was presented, removed the action to federal court. The district court, concluding that ERISA preempted her state law claims, denied a motion by plaintiff to remand the action to state court. After finding that the defendants had complied with their ERISA obligations to inform Mr. Howard of his conversion rights under the Plan, the district court granted summary judgment in their favor. This appeal followed.

DISCUSSION

A. Preemption

This appeal raises the frequently litigated issue of the scope of federal preemption under ERISA, the comprehensive federal statutory scheme "designed to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983). While the statute does not mandate particular benefits, it governs plan operations, provides rules of fiduciary responsibility and sets forth disclosure requirements to further ERISA's policy of protecting the interests of plan participants in the benefits that employers do elect to provide. Id. at 90-91, 103 S.Ct. at 2896-97; 29 U.S.C. Secs. 1001, 1022, 1024(b) (1982 & Supp.V 1987).

ERISA also contains a preemption provision. Section 514(a) provides that the statute "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by the statute. 29 U.S.C. Sec. 1144(a) (1982). However, this broad preemption provision is not without qualification and, pertinent to this case, excepts from preemption laws that "regulate insurance." 29 U.S.C. Sec. 1144(b)(2)(A) (1982). The district court concluded that New York Insurance Law Sec. 4216(d) is covered by the preemption clause and is not preserved by the savings clause as a law that regulates insurance. For the reasons set forth below, we agree.

ERISA applies to employee benefit plans, not employee benefits. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 7, 107 S.Ct. 2211, 2215, 96 L.Ed.2d 1 (1987). ERISA defines an employee welfare benefit plan, in pertinent part, as "any plan ... established or maintained by an employer ... for the purpose of providing ... participants or their beneficiaries, through the purchase of insurance ... benefits in the event of ... death." 29 U.S.C. Sec. 1002(1)(A) (1982). In Fort Halifax, the Supreme Court held that ERISA does not preempt a state statute requiring employers We believe that Mrs. Howard's reliance on Fort Halifax is misplaced. While the right to convert a group policy to an individual policy and the right to notice of that privilege are undeniably employee benefits, Mr. Howard obtained these rights pursuant to the Alliance Group Life and Long Term Disability Insurance Plan, an employee welfare benefit plan within the meaning of Sec. 1002(1). Although the one-time benefit to which the notice requirement pertains bears some superficial resemblance to the lone severance payment in Fort Halifax, it remains an integral part of the insurance plan administered by Gleason and Alliance and thereby renders the rationale of Fort Halifax inapposite. Because the New York statutory notice provision affects an ERISA covered plan, we must determine whether it is preempted.

to make a one-time severance payment to employees in the event of a plant closing, where the state statute relates to an employee benefit, not an employee benefit plan. The plaintiff argues that Fort Halifax is sufficiently close to her case to mandate a judgment in her favor.

The Supreme Court has explained that "the express pre-emption provisions of ERISA are deliberately expansive, and designed to 'establish pension plan regulation as exclusively a federal concern,' " Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45-46, 107 S.Ct. 1549, 1551-52, 95 L.Ed.2d 39 (1987) (quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1981)), in order to afford employers the advantages of a uniform set of administrative procedures governed by a single set of regulations. Fort Halifax, 482 U.S. at 11, 107 S.Ct. at 2217. We have been instructed that where ERISA mandates preemption of state laws that "relate to an employee benefit plan," the term "relate to" is to be given "its broad common-sense meaning, such that ... a state law 'relate[s] to' a benefit plan ... if it has a connection with or reference to such a plan." Pilot Life, 481 U.S. at 47, 107 S.Ct. at 1553. Accordingly, we have held that ERISA " 'preempt[s] all state laws that relate to employee benefit plans and not just state laws which purport to regulate an area expressly covered by ERISA.' " General Electric Co. v. New York State Department of Labor, 891 F.2d 25, 29 (2d Cir.1989) (quoting Wadsworth v. Whaland, 562 F.2d 70, 77 (1st Cir.1977), cert. denied, 435 U.S. 980, 98 S.Ct. 1630, 56 L.Ed.2d 72 (1978)) (emphasis in Wadsworth ).

But courts have reasonably concluded, notwithstanding the sweeping effect intended for ERISA preemption, that not every state law that affects ERISA plans is preempted. Some state laws simply affect employee benefit plans in "too tenuous, remote or peripheral a manner to warrant a finding that the law 'relates to' the plan." Shaw v. Delta Air Lines, 463 U.S. at 100 n. 21, 103 S.Ct. at 2901 n. 21. "What triggers ERISA preemption is not just any indirect effect on administrative procedures but rather an effect on the primary administrative functions of benefit plans, such as determining an employee's eligibility for a benefit...." Aetna Life Ins. Co. v. Borges, 869 F.2d 142, 146-47 (2d Cir.), cert. denied, --- U.S. ----, 110 S.Ct. 57, 107 L.Ed.2d 25 (1989). We agree with the district court that, applying the foregoing principles to this case, New York Insurance Law Sec. 4216(d) is preempted when applied to employers who provide group insurance with a conversion privilege as part of an ERISA benefit plan.

The New York statute provides that where a group insurance policy affords the certificate holder the right to convert the group policy to an individual policy upon the happening of an event, the holder must be notified of the conversion option, within the times specified prior or subsequent to the event triggering the right to convert. Notice must be given by either the insurer or the...